Weekly Economic Update - Cool Do

CoreLogic is pointing to an apparent shift in California real estate. While the market, while has been a great one for sellers, hasn’t yet flipped to the other extreme, September sales, not to mention those through much of the summer, indicate that buyer urgency is moderating, making for a neutral market in many parts of the state.

The hot California real estate market appears to be cooling down. Whether this is good news, bad news or merely yawn-inducing, probably depends whether you are in that market as a buyer, a seller, or not at all. Still, given the state’s role as a national trendsetter, it probably behooves everyone to pay attention.

CoreLogic looked at the state’s recent home sales and found them the lowest for any September since 2007. Sales normally flatten in the fall; school is back in session, people begin preparing for a multitude of holidays, but the 33,886 homes sold statewide represented a -21.9% change from August compared to an average decline since 2000 of 9.9%. Year-over-year sales were 18% lower, the largest annual decrease since October 2010. Annual results have fallen in four of the last five months.

Slower sales aren’t yet driving home prices lower, but they do seem to be slowing appreciation. The annual 4.1% gain in September was the lowest in more than two years.

Escalating prices coupled with rising interest rates have, according to CoreLogic’s Andrew LePage, caused a growing lack of affordability and what he calls a gradual shift in buyer psychology. He adds, “The sense of urgency among many would-be buyers subsided in recent months as sales slowed and listings rose. Inventory--especially more affordable inventory--remains relatively tight in some markets but many areas have transitioned from a seller’s market to a neutral market where neither buyers nor sellers have a distinct advantage.”

Bang For The Buck

Whatever the reasons for the Millennial generation’s slow roll toward homeownership, the Urban Institute (UI) says they may come to regret it. UI looked at when Americans in their early 60s bought their first homes and found the younger their age, the greater the financial benefit.

Those who bought when they were 25 to 34 years of age had a median of $150K in housing wealth by the time they turned 60 while the eventual equity of those who waited until they were 35 to 44 was some $72K less. Deferring ownership past age 45 shrunk wealth another $25K or more. Homeowners who bought before their 25th birthday didn’t have the largest equity wealth, the median was $130K, probably because they had less education, lower income, and bought less expensive first homes. Still, their ratio of return was the highest of the groups studied (1.93) while those who became homeowners at age 45 or older had the lowest (0.36).

The benefits came both from housing appreciation and paying off the mortgage. The youngest buyers, in fact, gained most of their wealth through amortization.